European Shares End Lower as Optimism on Cyprus Fades, Eurogroup Comments Weigh

Monday, 25 Mar 2013 | 12:54 PM ETCNBC.com

SHARES

European shares erased their early gains to finish in negative territory Monday, pressured by banks, after comments from the head of the Eurogroup who said a Cyprus bailout deal could be a new template for resolving euro zone banking problems.

Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times that the Cyprus rescue program represented a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders," said Dijsselbloem, hours after the Cyprus deal was struck.

This raised worries that other debt-ridden countries with troubled banks may face similarly punitive measures as Cyprus, which agreed to close down its second-largest bank and inflict heavy losses on big depositors.

"The action taken sets a dangerous precedent. I just think there's still a little sense of unease," said Berkeley Futures associate director Richard Griffiths.

Griffiths said clients were looking to buy "put" options on the German DAX equity index, which give the right to sell an index in the future and are often used on expectations of a market fall.

He said investors had taken DAX "puts" due to mature in April with a strike price of 7,700 points - implying that some investors saw a 2 percent fall on the DAX in the coming month.

Cyprus and its international lenders reached a deal merely hours before a deadline to resolve the island nation's financial crisis and avert the country's exit from the euro zone. The 10 billion euro ($13 billion) deal involves the winding down of Cyprus' second largest lender, the Popular Bank of Cyprus, and imposes a levy on uninsured deposits over 100,000 euros ($130,000) in Cypriot banks.